Tax Relief on Let to Buy Mortgage Interest - Is there an answer?

by **MondeoMan** on Tue Mar 07, 2006 2:36 am

Having posted previously on this site and looked at many other posts and responses I belive the advice given to many may be incorrect.

The question is; if you remortgage your existing home (property A) on a buy to let basis and use the money to buy another home to live in (property B), renting out property A, is the remortgage interest on property A an allowable deduction against the rental income obtained from it?

The answer I and many others have received on this site is Yes. However having looked further and spoken to the HMCE helpline the answer seems to be NO.

I wonder if anyone can actually provide any conclusive evidence or case examples to support the "Yes" answer as this is obviously has a huge impact on the amount of income tax payable in this situation.

Many thanks.

by **King_Maker** on Tue Mar 07, 2006 3:08 am

HMRC's Help Line are in error.

However, I have come across some quite senior Tax Inspectors who don't realise that interest is deductible in this way. So I don't find it that surprising that the Help Line were not aware of it.

The interest on a loan to re-finance your Capital Account of your Letting Business, irrespective of its purpose or whether it is secured or not, can be deducted from your rental income.

The maximum amount of the loan would be limited to its purchase price or market value at the time the property was introduced into the Letting business.

An example (Example 2) is given in the Inland Revenue's Business Income Manual at section 45700 :

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

by **MondeoMan** on Tue Mar 07, 2006 3:32 am

Thanks very much King_Maker. This really does seem very conclusive.

by **King_Maker** on Tue Mar 07, 2006 3:58 am

You're welcome.

However, some HMRC employees apparently still don't think the deduction applies as property rental is not a "business"! Obviously they need to re-read BIM 45700 more closely. :)

by **Lambs** on Tue Mar 07, 2006 5:47 am

You know what'll happen eventually, if HMRC thinks it can get away with it: there'll be a bit of 'nip and tuck,' and 45700 will be no more...

It's amazing really, that HMRC seems to have lost sight of its real goal, i.e. to "assess" and collect the correct amount of tax, and instead is more interested in just obtaining the largest amount of tax that it can e.g. here, by trying to deny relief which is clearly available, and most importantly by failing to publicise the extent of the relief to its own representatives.

Regards,

Lambs

by **exceldefender** on Sun Mar 19, 2006 12:45 am

would the above apply if the loan is secured on a different property?
ie. i own my rental property 'A' outright with no mortgage and wish to buy another property 'B' to live in. i will need to mortgage property 'B'.
is the proportion of interest from the mortgage secured on 'B' which relates to the amount of capital tied up in 'A' allowable?
thanks

by **King_Maker** on Sun Mar 19, 2006 2:24 am

As already posted, since the loan does not have to be secured in order to qualify for tax relief, it is not relevant which property is charged in repect of a secured loan.

by **vkumar2705** on Mon Nov 07, 2011 2:52 pm

my question is along this theme.
I have property A which was my home originally valued 180000. the mortgage is 75000 as I made overpayment from savings while I lived in it. Due to job situation i moved and bought a property B as new home Valued 470000 with a mortgage of 352000. i have permission to let for property A and let it. is the proportional remortgage interest for 105000 on property B an allowable deduction against the rental income obtained from property A?

by **pqtaxation** on Mon Nov 07, 2011 4:11 pm

As mentioned previously on this thread, example 2 in HMRC manual BIM45700 gives you your answer

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

Basically you are starting a new business of property rental which you can finance by interest deductible loans/mortgages up to the open market value of the property at the time you start the business. The loans/mortgages can be secured on that property and/or your other assets.

If you want to prepare your personal property rental business balance sheet per that example 2 at the time you entered into property rental business and then post it with any questions then please do so.

by **section 44** on Mon Nov 07, 2011 4:35 pm

vkumar2705 wrote:is the proportional remortgage interest for 105000 on property B an allowable deduction against the rental income obtained from property A?

No. While it does not matter what property the loan is secured on, the purpose of the borrowing is important. The purposes of the borrowing was to acquire property B and not to acquire, or refinance, property A.